Legal nuances divide airport, KACo cases

Even after reading a scalding state audit of the Kentucky Association of Counties, state law enforcement agencies said they would not pursue criminal investigations of KACo officials who charged personal items such as an escort service, sports tickets and other entertainment.

Yet the day after that Oct. 29 audit, four former Blue Grass Airport leaders were arraigned in Fayette Circuit Court on theft charges related to thousands of dollars in questionable expenses made using airport credit cards.

Since then, many Kentuckians — and even one ex-airport official's attorney — have asked how spending public funds excessively and improperly can lead to criminal charges in one case but not another.

The answer lies in the nuances of state law and the differences in policies that were in place at the two quasi-governmental agencies, officials said.

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"I look at the KACo audit and can think, wow, some of the actions are disgusting; they're very disappointing," said Attorney General Jack Conway. "If I could write the law, I would certainly write the law to allow us to do more. But the fact of the matter is that my duty is to enforce the laws on the books."

The four ex-Blue Grass Airport officials, including its former executive director, Michael A. Gobb, face a total of 17 charges of theft by deception for using airport-issued credit cards to make purchases of more than $500 "for personal use."

But after scrutinizing state Auditor Crit Luallen's report on KACo, officials at the attorney general's office said the same template couldn't be applied to leaders at the non-profit organization, which provides services such as insurance coverage, financing and legal advice to county governments.

State auditors have scrutinized the expenses of both organizations in the last 10 months and actually found questionable and undocumented spending at KACo that was six times higher than the airport spending over three years.

But the difference between illegal and simply improper is defined by the circumstances and the spending guidelines — or lack thereof — at each organization.

'Taking things home'

State auditors found specific instances at the airport in which Gobb misrepresented the purpose for purchases or instructed other managers to make the charges on their cards, which wouldn't be seen by the airport board. Gobb himself approved the charges of managers under him.

"At the airport, they clearly were passing things off to the board as expenses that had a legitimate purpose when in fact they were taking things home for personal use," Luallen said last week.

At KACo, the board of directors gave the former executive director, Bob Arnold, wide latitude to spend the organization's money and approve staff expenses.

KACo board members, in fact, directly benefited from the spending on expensive meals, travel and gifts, which Luallen described as a "self-serving" culture.

Case in point: Luallen's auditors found purchases of more than $1,600 for theater tickets at both organizations.

One count of theft that Gobb faces appears to refer to the purchase of $1,606 in tickets to six plays in Cincinnati that he instructed a marketing employee to make for him in August 2006, according to Luallen's audit.

During a December 2008 trip to New York, KACo's director of financial services, Grant Satterly, spent $1,814 on 13 tickets to the Radio City Christmas Spectacular, which Luallen's audit said "appear to be purely for entertainment purposes."

"But it was actually board members who were enjoying most of those tickets," Luallen said, unlike the airport, where board members didn't know about Gobb's tickets.

Gobb's attorney, Patrick Nash, however, said he couldn't see a difference.

"It's not similar. It's identical," he said of the ticket examples.

A volunteer board

Three days before Luallen unveiled her review of KACo, she called in officials from the Attorney General's office for a briefing.

"This audit, we knew, would be so high-profile, I didn't want to make a referral to their office for a criminal investigation unless we got some feedback from them about whether they thought it was viable," Luallen said.

In addition to looking at possible theft charges, investigators and attorneys looked at the official misconduct statute because KACo's board is made up of elected county officials.

But those officials had volunteered to serve on KACo's board and "weren't acting in their official capacity," Conway said.

Even the most controversial expenses at KACo — tabs at two Louisville strip clubs and a pair of charges to a Lexington escort service — wouldn't lead to a criminal investigation because each of the individual expenses were less than $300, making them eligible only for misdemeanor charges. And, the statute of limitations had passed.

The strip club bills and one escort service charge for $175 appeared in early 2008 on the credit card of the group's then-president, David Jenkins, a Democrat and Spencer County judge-executive. And the other escort service bill of $270 was charged to Arnold's KACo card in May 2007.

'Reverse Robin Hood'

Luallen, however, did forward the audit of KACo, which is set up as a non-profit 501(c)(3) organization, to the Internal Revenue Service because auditors found some benefits to Arnold that weren't disclosed to the IRS.

Jodie Reynolds, a spokeswoman for the IRS in Indiana and Kentucky, said the agency cannot confirm or deny any ongoing investigation.

Still, some Kentuckians say they're frustrated that there won't be steeper consequences for officials who allowed unchecked spending of millions of dollars in money that came from county governments.

"It's like a reverse Robin Hood, where they stole from the poor to give to themselves," said Bob Risley of Rowan County, who called the Herald-Leader last week to express his outrage.

Conway, who is running as a Democrat for the U.S. Senate, said political considerations played no part in his office's decision.

"It may have upset a few county elected officials to have pursued charges, but with the hundreds of thousands of people who are going to cast votes, it probably would have been more politically expedient to be the crusading prosecutor," he said. "However, it was a case where I have to follow the law."